The end of the lost decade
Several countries have used the term “lost decade” to describe periods of stagnation – Britain in the 1970s, Latin America in the 1980s (“La Década Perdida”) and Japan in the 1990s and 2000s.
South Africa’s own lost decade, give or take a few years, started in the mid-2010s. From the pride and excitement of hosting the 2010 FIFA World Cup, things started going downhill not long after, culminating in in the devastation of the Covid pandemic, the shame and fear triggered by the July 2021 riots, and the frustration of sustained stage 6-loadshedding in 2022 and 2023.
Some of what went wrong in South Africa’s lost decade was due to global factors, including the pandemic, volatile commodity prices, a stronger dollar and capital outflows from emerging markets. However, this was severely compounded by bad policy choices, deteriorating governance, rising systemic corruption and the hollowing out of institutions meant to check the abuse of power. This casted a long shadow over financial markets and the broader economy suffered in tow. In that regard, tomorrow’s 10-year anniversary of ‘Nenegate’ is significant and provides a marker to date the lost decade. It was the moment when both local and international investors realised, without doubt, that something was fundamentally wrong.
It was, however, also the beginning of the end for President Jacob Zuma. When he fired finance minister Nhlanhla Nene for resisting the looting of the fiscus on 8 December 2015, the market reaction was fierce. Bond prices crashed, causing a spike in government borrowing costs, and the rand slumped. Zuma was forced to backtrack on the appointment of Des Van Rooyen as Nene’s replacement. The “bond vigilantes” played as big a role as any other group to undermine his power and finally remove him from office, allowing the process of repair to begin.
South Africa was not only downgraded by ratings agencies after Nenegate, but was instantly downgraded by the markets, and started trading at a discount to its peer countries. Chart 1 compares the borrowing costs of the South African government with a handful of emerging market peers across four continents. A very distinct gap opened after Nenegate that persisted for the subsequent decade. Covid hit South Africa particularly hard and the gap widened again in 2022 even as reforms were underway. The consequence of earlier mismanagement – notably loadshedding, a logistics crisis and elevated government debt levels – proved to be persistent.
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